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Commodity economies in today's' society

Imagine this: each community in the country is suddenly responsible for designing its own local commodity-based financial system, and you have been assigned the task of choosing what commodity your community will use and how it will be implemented.

Please answer:
1. What commodity would you choose, and why would it work for your community?
2. In your commodity-based system, what would be the price for a gallon of milk? How did you come up with this price?
3. In this system, who would the financial intermediaries be?
4. What are the inevitable limitations of this system, particularly when it comes to dealing with trade to other communities?
5. When looking at commodities, you will find that these are things that have particular value. Why do we want to consume more commodities when there is inflation?

Solution Preview

Question 1:
A commodity based system is a system in which the economy is based on commodity-based approach and trade. A commodity-based society represents a system in which a community has its own commodity-based financial system by using a single commodity as a main product for trade with other communities (Keller, 2003). In order to design a commodity-based system, gold is selected as central good for community to trade with other communities.
Gold is the most precious product due to its higher price or value as compared to other commodities. This commodity would be useful for the community to purchase other essential goods like milk, wheat, rice, corn, tea, coffee etc. in the exchange of gold without any difficulty. Because gold has a higher value, it will help the community to trade other commodities in large quantity. It is known that gold reserves are used as indicator to measure economic strength of any nation. Similarly, gold would work to show economic strength of the community in front of other communities (Harman & Porteer, 1997). Along with this, it would also work to increase the financial condition of the community in case of trading gold to others.
This system will be implemented by developing the new policy and regulations for the community to guide how to make trade with other communities in the exchange of gold. Additionally, an economic framework will also be developed to apply this system with existing financial system by including financial intermediaries and developing pricing policy.

Question 2:
In this system, the price of milk would be more stable ...

Solution Summary

Commodity economies in today's society are determined in the solution.